CAVCO INDUSTRIES INC (Form: 10-Q, Received: 08/01/2007 16:04:35)

UNITED STATES
SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-08822

Cavco Industries, Inc.

(Exact name of Registrant as specified in its charter)


Delaware		56-2405642 1

(State or other jurisdiction of incorporation)		(IRS Employer Identification Number)

1001 North Central Avenue, Suite 800, Phoenix, Arizona 85004
(Address of principal executive offices)
(Zip Code)

(602) 256-6263

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last year)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of July 30, 2007, there were 6,421,480 shares of the registrant’s common stock, $.01 par value, issued and outstanding.

CAVCO INDUSTRIES, INC.
FORM 10-Q
June 30, 2007

Table of Contents


			Page
PART I. FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Balance Sheets as of June 30, 2007 (unaudited) and March 31, 2007		1

		Consolidated Statements of Operations (unaudited) for the three months ended June 30, 2007 and 2006		2

		Consolidated Statements of Cash Flows (unaudited) for the three months ended June 30, 2007 and 2006		3

		Notes to Consolidated Financial Statements	4 - 9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10 - 14

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		14

	Item 4.	Controls and Procedures		14

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings		15

	Item 1A.	Risk Factors		15

	Item 4.	Submission of Matters to a Vote of Security Holders		15

	Item 6.	Exhibits		16

SIGNATURES				17

EXHIBIT INDEX				18
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32

PART I. FINANCIAL INFORMATION

Item 1: Financial Statements

CAVCO INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


	June 30,			March 31,
	2007			2007
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	14,157		$	12,976
Short-term investments		54,400			50,900
Restricted cash		127			339
Accounts receivable		9,083			8,107
Inventories		13,303			13,464
Prepaid expenses and other current assets		2,193			2,273
Deferred income taxes		4,015			3,930

Total current assets		97,278			91,989


Property, plant and equipment, at cost:
Land		6,050			6,050
Buildings and improvements		7,138			7,029
Machinery and equipment		7,752			7,617

		20,940			20,696
Accumulated depreciation		(8,052	)		(7,894	)

		12,888			12,802


Goodwill		67,346			67,346


Total assets	$	177,512		$	172,137


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	2,440		$	2,868
Accrued liabilities		20,914			18,417

Total current liabilities		23,354			21,285


Deferred income taxes		13,360			12,760

Commitments and contingencies

Stockholders’ equity
Preferred Stock, $.01 par value; 1,000,000 shares authorized; No shares issued or outstanding		—			—
Common Stock, $.01 par value; 20,000,000 shares authorized; Outstanding 6,421,480 and 6,382,980 shares, respectively		64			64
Additional paid-in capital		123,839			122,868
Retained earnings		16,895			15,160

Total stockholders’ equity		140,798			138,092


Total liabilities and stockholders’ equity	$	177,512		$	172,137

See accompanying Notes to Consolidated Financial Statements

CAVCO INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

(Unaudited)


	Three Months Ended
	June 30,
	2007		2006
Net sales	$	37,366	$	54,050
Cost of sales		31,926		43,431

Gross profit		5,440		10,619
Selling, general and administrative expenses		3,574		4,421

Income from operations		1,866		6,198
Interest income		671		574

Income before income taxes		2,537		6,772
Income tax expense		802		2,438

Net income	$	1,735	$	4,334


Net income per share:
Basic	$	0.27	$	0.68

Diluted	$	0.26	$	0.65


Weighted average shares outstanding:
Basic		6,400,536		6,355,818

Diluted		6,656,460		6,641,376

See accompanying Notes to Consolidated Financial Statements

CAVCO INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Three Months Ended June 30,
	2007			2006
OPERATING ACTIVITIES
Net income	$	1,735		$	4,334
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		190			232
Deferred income taxes		515			270
Share-based compensation expense		108			293
Tax benefits from option exercises		355			75
Incremental tax benefits from option exercises		(300	)		(66	)
Changes in operating assets and liabilities:
Restricted cash		212			801
Accounts receivable		(976	)		1,255
Inventories		161			(1,837	)
Prepaid expenses and other current assets		80			641
Accounts payable and accrued liabilities		2,069			(338	)

Net cash provided by operating activities		4,149			5,660


INVESTING ACTIVITIES
Purchases of property, plant and equipment		(276	)		(500	)
Purchases of short-term investments		(66,500	)		(115,000	)
Proceeds from sale of short-term investments		63,000			110,500

Net cash used in investing activities		(3,776	)		(5,000	)


FINANCING ACTIVITIES
Proceeds from exercise of stock options		508			82
Incremental tax benefits from option exercises		300			66

Net cash provided by financing activities		808			148


Net increase in cash and cash equivalents		1,181			808
Cash and cash equivalents at beginning of period		12,976			15,122


Cash and cash equivalents at end of period	$	14,157		$	15,930


Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes	$	—		$	—

See accompanying Notes to Consolidated Financial Statements

CAVCO INDUSTRIES, INC.

Notes to Consolidated Financial Statements

June 30, 2007

(Dollars in thousands, except per share data)

(Unaudited)

1. Basis of Presentation

The accompanying Consolidated Financial Statements of Cavco Industries, Inc., and its wholly-owned subsidiaries (collectively, the “Company” or “Cavco”), have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for Quarterly Reports on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, these statements include all the normal recurring adjustments necessary to fairly state the Company’s Consolidated Financial Statements. The Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the interim periods are not necessarily indicative of the results or cash flows for the full year. The Company suggests that these Consolidated Financial Statements be read in conjunction with the audited Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K filed with the SEC on May 22, 2007 (the “Form 10-K”).

The Company’s deferred tax assets primarily result from financial accruals and its deferred tax liabilities result from excess tax amortization of goodwill.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN 48”), on April 1, 2007. FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognizing, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of FIN 48 had no significant impact on the Company’s results of operations or balance sheet for the quarter ended June 30, 2007 and required no adjustment to opening balance sheet accounts as of March 31, 2007.

The Company has recorded an insignificant amount of unrecognized tax benefits and there would be an insignificant effect on the effective tax rate if all unrecognized tax benefits were recognized. The Company classifies interest and penalties related to unrecognized tax benefits in tax expense.

The Company previously operated as a wholly-owned subsidiary of Centex Corporation (“Centex”). On June 30, 2003, Centex distributed 100% of the outstanding shares of the Company’s common stock to the stockholders of Centex. Upon this distribution, Cavco Industries, Inc. became a separate public company, at which time, the Company became responsible for all U.S. federal, state or local income tax examinations by tax authorities in our major tax jurisdictions. Consolidated and separate income tax returns are filed in the U.S. federal jurisdiction and in several state jurisdictions. The Company is no longer subject to examinations by tax authorities in Arizona and California for years before fiscal year 2004. Additionally, the Internal Revenue Service (“IRS”) has completed its examination of the Company’s federal income tax return for fiscal year 2005 resulting with a Revenue Agent Report that indicated no changes; therefore subsequent years, and the prior fiscal year 2004 still remain subject to examination by the IRS. The Company believes that its income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to the Company’s financial position. The total amount of unrecognized tax benefit related to any particular tax position is not anticipated to change significantly within the next 12 months.

For a description of significant accounting policies used by the Company in the preparation of its Consolidated Financial Statements, please refer to Note 1 of the Notes to Consolidated Financial Statements in the Form 10-K.

2. Composition of Certain Financial Statement Captions

Inventories consist of the following:


	June 30,		March 31,
	2007		2007
Raw materials	$	4,457	$	4,943
Work in process		3,113		3,001
Finished goods		5,733		5,520

	$	13,303	$	13,464

Accrued liabilities consist of the following:


	June 30,		March 31,
	2007		2007
Estimated warranties	$	6,828	$	6,590
Customer deposits		3,729		1,777
Salaries, wages and benefits		2,532		3,050
Accrued volume rebates		2,249		1,847
Accrued insurance		1,453		1,308
Reserve for repurchase commitments		1,000		1,100
Other		3,123		2,745

	$	20,914	$	18,417

3. Revolving Line of Credit

The Company has a $15 million revolving line of credit facility (“RLC”) with JPMorgan Chase Bank N.A. which expires on July 31, 2007. As of June 30, 2007, $870 of the line amount is reserved for an outstanding letter of credit issued for a self-funded workers’ compensation program which concluded on September 30, 2006. The Company has not made any draws under the RLC. The outstanding principal amounts of borrowings under the RLC bear interest at the Company’s election at either the prime rate or the London Interbank Offered Rate plus 1.75%. The RLC contains certain restrictive and financial covenants, which, among other things, limit the Company’s ability to pledge assets and incur additional indebtedness, and requires the Company to maintain a certain defined fixed charge coverage ratio. The Company has always maintained compliance with the RLC’s financial covenants. Based on the current capital structure and cash position of the Company, and as a cost saving measure, the Company does not intend to renew the line of credit facility past the current expiration date. However, the letter of credit referred to above will be continued to satisfy the remaining requirements of the concluded workers’ compensation program.

4. Warranties

Homes are warranted against manufacturing defects for a period of one year commencing at the time of sale to the retail customer. Estimated costs relating to home warranties are provided at the date of sale. The Company has recorded a liability for estimated future warranty costs relating to homes sold based upon management’s assessment of historical experience factors and current industry trends. Activity in the liability for estimated warranties was as follows:


	Three Months Ended
	June 30,
	2007			2006
Balance at beginning of period	$	6,590		$	6,850
Charged to costs and expenses		2,098			2,239
Deductions		(1,860	)		(2,039	)

Balance at end of period	$	6,828		$	7,050

5. Contingencies

Repurchase Contingencies — The Company is contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for retailers of its products. These arrangements, which are customary in the industry, provide for the repurchase of products sold to retailers in the event of default by the retailer. The risk of loss under these agreements is spread over numerous retailers. The price the Company is obligated to pay generally declines over the period of the agreement (generally 18 — 24 months) and is further reduced by the resale value of the homes. The maximum amount for which the Company was contingently liable under such agreements approximated $29,268 at June 30, 2007, without reduction for the resale value of the homes. The Company applies FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57, and 107 and a rescission of FASB Interpretation No. 3 (“FIN 45”) and SFAS No. 5, Accounting for Contingencies (“SFAS 5”) to account for its liability for repurchase commitments. Under the provisions of FIN 45, the Company records the greater of the estimated fair value of the non-contingent obligation or a contingent liability under the provisions of SFAS 5. The Company recorded an estimated liability of $1,000 at June 30, 2007 related to these commitments.

Legal Matters — The Company is party to certain legal proceedings that arise in the ordinary course and are incidental to its business. Certain of the claims pending against the Company in these proceedings allege, among other things, breach of contract and warranty, product liability and personal injury. Although litigation is inherently uncertain, based on past experience and the information currently available, management does not believe that the currently pending and threatened litigation or claims will have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations. However, future events or circumstances currently unknown to management will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on the Company’s consolidated financial position, liquidity or results of operations in any future reporting periods.

6. Stock-Based Compensation

The Company maintains stock incentive plans whereby stock option grants or awards of restricted stock may be made to certain officers, directors and key employees. The plans, which are shareholder approved, permit the award of up to 1,350,000 shares of the Company’s common stock, of which 565,393 shares were still available for grant at June 30, 2007. When options are exercised, new shares of the Company’s common stock are issued. Stock options may not be granted below 100% of the fair market value of the Company’s common stock at the date of grant and generally expire seven years from the date of grant. Stock options and awards of restricted stock vest over a three to five-year period. The stock incentive plans provide for accelerated vesting of stock options and removal of restrictions on restricted stock awards upon a change in control (as defined in the plans).

Effective April 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123 – revised 2004, Share-Based Payment (“FAS 123(R)”), and SEC Staff Accounting Bulletin No. 107 (“SAB 107”), using the modified-prospective transition method. Other than restricted stock awards, no share-based compensation cost had been reflected in net income prior to the adoption of FAS 123(R) and the results for prior periods have not been restated.

Stock-based compensation expense under FAS 123(R) decreased income before income taxes for the three months ended June 30, 2007 and 2006 by approximately $105 and $230, respectively, and decreased net income for the three months ended June 30, 2007 and 2006 by approximately $72 and $147, respectively. Total compensation cost, including costs related to the vesting of restricted stock awards, charged against income for the three months ended June 30, 2007 and 2006 was approximately $108 and $293, respectively.

As of June 30, 2007, total unrecognized compensation cost related to stock options was approximately $424 and the related weighted-average period over which it is expected to be recognized is approximately 1.97 years.

The following table summarizes the option activity within the Company’s stock-based compensation plans for the three months ended June 30, 2007:


						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number			Exercise		Contractual		Intrinsic
	of Shares			Price		Term		Value
Outstanding at March 31, 2007		679,830		$	15.92
Granted		7,500			38.07
Exercised		(38,500	)		13.20
Canceled or forfeited		—			—

Outstanding at June 30, 2007		648,830		$	16.34		3.85	$	13,747

Exercisable at June 30, 2007		597,705		$	15.13		3.73	$	13,384

The weighted-average estimated fair value of employee stock options granted during the three months ended June 30, 2007 and 2006 were $13.96 and $15.72, respectively. The total intrinsic value of options exercised during the three months ended June 30, 2007 and 2006 was approximately $922 and $190, respectively.

The Company uses the Black-Scholes-Merton option-pricing model to determine the fair value of stock options. The determination of the fair value of stock options on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include actual and projected employee stock option exercise behaviors, the Company’s expected stock price volatility over the term of the awards, risk-free interest rate, and expected dividends. The fair values of options granted were estimated at the date of grant using the following weighted average assumptions:


	Three Months Ended
	June 30,
	2007			2006
Volatility		33.1	%		33.0	%
Risk-free interest rate		4.8	%		4.9	%
Dividend yield		0.0	%		0.0	%
Expected option life in years		4.75			4.25

The Company estimates the expected term of options granted by using the simplified method as prescribed by SAB 107. The Company estimates the expected volatility of its common stock taking into consideration its historical stock price movement, the volatility of stock prices of companies of similar size with similar businesses to it and its expected future stock price trends based on known or anticipated events. The Company bases the risk-free interest rate that it uses in the option pricing model on U.S. Treasury zero-coupon issues with remaining

terms similar to the expected term on the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option-pricing model. The Company is required to estimate future forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation cost only for those awards that are expected to vest. The Company recognizes share-based compensation expense using the straight-line attribution method.

Restricted stock awards are valued at the closing market value of the Company’s common stock on the date of grant, and the total value of the award is expensed ratably over the service period of the employees receiving the grants. A summary of restricted stock activity within the Company’s share-based compensation plans and changes for the three months ended June 30, 2007 is as follows:


	Shares		Grant-Date Fair Value
Nonvested at March 31, 2007		923	$	32.49
Granted		2,104		38.02
Vested		—		—
Forfeited		—		—

Nonvested at June 30, 2007		3,027	$	36.34

7. Earnings Per Share

Basic earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period increased by the weighted-average number of dilutive common stock equivalents outstanding during the period, using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share.


	Three Months Ended
	June 30,
	2007		2006
Net income	$	1,735	$	4,334


Weighted average shares outstanding:
Basic		6,400,536		6,355,818
Common stock equivalents — treasury stock method		255,924		285,558

Diluted		6,656,460		6,641,376


Net income per share:
Basic	$	0.27	$	0.68

Diluted	$	0.26	$	0.65

There were 1,823 anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share for the three months ended June 30, 2007. No anti-dilutive common stock equivalents were excluded from the computation of diluted earnings per share for the three months ended June 30, 2006.

8. Discontinued Operations

The Company has plans to dispose of certain of its retail sales centers and these operations are considered discontinued retail operations. Included in the accompanying Consolidated Balance Sheet are finished goods inventories to be liquidated in conjunction with the disposal of these retail sales centers of approximately $790 at June 30, 2007. There were no operating losses for the three months ended June 30, 2007 or 2006 for the stores identified for disposal as the costs related to the liquidation of inventory were consistent with our expectations of net realizable values. Net sales for the retail sales centers to be disposed of approximated $855 and $1,432 for the three month periods ended June 30, 2007 and 2006, respectively.

9. Business Segment Information

The Company operates in two business segments — Manufacturing and Retail. Through its Manufacturing segment, the Company designs and manufactures homes which are sold primarily in the southwestern United States to a network of dealers which includes Company-owned retail locations comprising the Retail segment. The Company’s Retail segment derives its revenues from home sales to individuals. The accounting policies of the segments are the same as those described in the Form 10-K. Retail segment results include retail profits from the sale of homes to consumers but do not include any manufacturing segment profits associated with the homes sold. Intercompany transactions between reportable operating segments are eliminated in consolidation. Substantially all depreciation and capital expenditures are related to the Manufacturing segment. Each segment’s results include corporate office costs that are directly and exclusively incurred for the segment. The following table summarizes information with respect to the Company’s business segments for the periods indicated:


	Three Months Ended
	June 30,
	2007			2006
Net sales
Manufacturing	$	36,238		$	51,568
Retail		2,610			4,319
Less: Intercompany		(1,482	)		(1,837	)

Total consolidated net sales	$	37,366		$	54,050


Income from operations
Manufacturing	$	2,976		$	7,448
Retail		(14	)		66
Intercompany profit in inventory		78			115
General corporate charges		(1,174	)		(1,431	)

Total consolidated income from operations	$	1,866		$	6,198


	As of
	June 30,		March 31,
	2007		2007
Total assets
Manufacturing	$	100,074	$	99,833
Retail		4,786		4,424
Corporate		72,652		67,880

Total consolidated assets	$	177,512	$	172,137

Total Corporate assets are comprised primarily of cash and cash equivalents, short-term investments and deferred taxes.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following should be read in conjunction with the Company’s Consolidated Financial Statements and the related Notes that appear in Item 1 of this Report. References to “Note” or “Notes” refer to the Notes to the Company’s Consolidated Financial Statements that appear in Item 1 of this Report.

Overview

We are the largest producer of manufactured homes in Arizona and the 8th largest producer of HUD code manufactured homes in the United States, based on 2006 total home production data published by Manufactured Home Merchandiser magazine. The Company is also a leading producer of park model homes and vacation cabins in the United States.

Headquartered in Phoenix, Arizona, the Company designs and produces factory-built homes which are sold to a network of retailers located primarily in the southwestern United States. As of June 30, 2007, the Company operated three homebuilding facilities located in Arizona and one manufacturing facility in Texas. The retail segment of the Company operates seven retail sales locations in Arizona, New Mexico and Texas which offer homes produced by the Company and other manufacturers to retail customers.

Industry and Company Outlook

The manufactured housing industry continues to operate at historically low production and shipment levels. The availability of consumer financing for the retail purchase of manufactured homes and inventory financing for the wholesale distribution chain remains a key issue to be resolved before marked emergence from the current lows can occur. Progress has also been impeded by several industry economic challenges including increased land costs and a slowdown in housing demand in general.

Cavco benefited from robust regional activity in 2005 and during the first half of 2006. In particular, the Company’s wholesale sales in California increased appreciably during that time. Cavco’s results were relatively strong through the first half of 2006, but have declined in each successive quarter since that time. Industry shipments to California dropped significantly and Arizona shipments were also down. The Company was affected by declining order rates throughout most of its fiscal year ended March 31, 2007, and order rates are still low, although they did show some modest signs of improvement during the first quarter of fiscal 2008 ended June 30, 2007. We have aggressively managed our production levels and labored diligently throughout this difficult period to produce positive financial results.

While we cannot determine the particular causes of the slowdown in Cavco’s orders, we can identify market shifts that may have contributed to the decline and that also may be affecting our competitors who are generally reporting reduced sales activity as well. A slowdown in the site-built housing industry combined with reported substantial increases in new home inventories has had a negative influence on activity in manufactured housing.

Site-built home repossessions are also reported to be on the rise. The slowdown of the resale market for site-built homes has had an adverse impact on the contingency contract process, wherein manufactured homebuyers must sell their site-built home in order to facilitate the purchase of a new manufactured home. In addition, many on-site home builders with high inventory levels are offering attractive incentives to homebuyers, which may create added competition for the manufactured housing industry.

There have been reports suggesting that site-built lenders have tightened their credit requirements, specifically in the sub-prime and alt-A (no documentation loans) lending markets. Further tightening of underwriting standards in the sub-prime and alt-A lending markets could benefit our industry if it has the effect of shifting homebuyers to the manufactured housing market. However, we have experienced no discernable benefit from any changes that may have occurred in underwriting standards.

During the current downturn, we expanded our operations into other geographic markets by opening a plant in Seguin, Texas. This factory builds a variety of products designed specifically for the Texas and surrounding marketplace. While the factory-built housing market in Texas has been depressed for several years as well, we believe it is prudent for Cavco to establish a position in this area, as it has historically been a large market for manufactured housing. Our efforts in Texas are beginning to gain some traction, as there has been a slight improvement in Texas shipments recently. To date, the start-up of the Texas plant has negatively affected the Company’s overall gross profit and detracted from the bottom line; however, when production volume and efficiencies improve, we believe this factory will become a long-term contributor to the Company.

Company-wide, our products are diverse and tailored to the needs and desires of our customers. Innovation in housing design is a forte of the Company and we continue to introduce new models at competitive price points with expressive interiors and exteriors that complement home styles in the areas in which they are to be located.

In the face of the weak housing environment, we remain optimistic about our long term prospects as we believe that we are located in attractive geographic markets, we have an excellent and diverse line of products and we maintain a conservative cost structure which enables us to build great value into our homes. As the housing sector’s climate and circumstances evolve, we will remain focused on our core competencies of responding quickly to developments in market demand, the production of high quality homes, and following through with exceptional service.

Results of Operations — (Dollars in thousands)

Three months ended June 30, 2007 compared to 2006

Net Sales. Total net sales decreased 30.9% to $37,366 for the three months ended June 30, 2007 compared to $54,050 for the comparable quarter last year.

Manufacturing net sales decreased 29.7% to $36,238 for the three months ended June 30, 2007 from $51,568 for the same period last year. The decrease in net sales was driven by lower incoming order rates, resulting in a reduced number of total homes sold, comprised of 856 wholesale shipments in the first quarter of fiscal 2008 versus 1,063 in the same period last year. A greater proportion of homes sold during the current quarter were single-section and lower-end products, causing a 12.7% reduction in the average selling price per home, which was $42,334 versus $48,512 for last year’s first quarter.

Retail net sales decreased $1,709 to $2,610 for the three months ended June 30, 2007 from $4,319 for the same quarter last year. This decrease in retail sales was driven by a 32.5% reduction in the overall number of homes sold.

Net Income. Net income decreased 60% to $1,735 for the three months ended June 30, 2007 compared to $4,334 for the comparable quarter last year.

Gross Profit. Gross profit as a percent of sales decreased to 14.6% for the three months ended June 30, 2007 from 19.6% for the same period last year. The gross profit percentage has been challenged by lower production volume, a less favorable product mix, and low margin results from the new Texas plant.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased 19.2% or $847, to $3,574 or 9.6% of net sales, for the three months ended June 30, 2007 versus $4,421 or 8.2% of net sales, for the same period last year. The decrease was primarily the result of reduced costs associated with compensation programs tied to profitability and a decrease in costs influenced by lower sales volume.

Interest Income. Interest income represents income earned on short-term investments and unrestricted cash and cash equivalents. For a portion of the Company’s short-term investments, interest income is earned on a tax-free basis. Our interest income increased 16.9% to $671 for the three months ended June 30, 2007 as compared to $574 during the prior year period. The increase resulted mainly from the Company’s larger balance of investable funds.

Income Taxes. The effective income tax rate was approximately 32% and 36% for the three month period ended June 30, 2007 and 2006, respectively. The lower income tax rate reflects the effects of a larger proportion of tax-free interest income noted above, certain state income tax credits and deductions provided in the American Jobs Creation Act.

Discontinued Retail Operations. The Company has plans to dispose of certain of its retail sales centers and these operations are considered discontinued retail operations (see Note 8).

Liquidity and Capital Resources

We believe that cash, cash equivalents and short-term investments on hand at June 30, 2007, together with cash flow from operations, will be sufficient to fund our operations and provide for growth for the next twelve months and into the foreseeable future. However, depending on our operating results and strategic opportunities, we may need to seek additional or alternative sources of financing. There can be no assurance that such financing would be available on satisfactory terms, if at all. If this financing were not available, it could be necessary for us to reevaluate our long-term operating plans to make more efficient use of our existing capital resources. The exact nature of any changes to our plans that would be considered depends on various factors, such as conditions in the factory-built housing industry and general economic conditions outside of our control.

Based on the current capital structure and cash position of the Company, and as a cost saving measure, the Company does not intend to renew its $15 million revolving line of credit facility with JPMorgan Chase Bank N.A. which expires on July 31, 2007 (see Note 3).

Projected cash to be provided by operations in the coming year is largely dependent on sales volume. Operating activities provided $4,149 of cash during the three months ended June 30, 2007 as compared to $5,660 during the same period last year. Cash generated by operating activities for the current period was mainly derived from operating income before non-cash charges and higher accrued liabilities primarily due to increased wholesale and Texas retail customer deposits, partially offset by higher receivable balances pertaining to moderately increased wholesale sales volume. Cash generated by operating activities in the prior period was primarily derived from operating income before non-cash charges and the timing of collection of accounts receivable balances partially offset by higher inventories necessary to ensure the availability of raw materials.

Investing activities required the use of $3,776 of cash during the three months ended June 30, 2007 compared to the use of $5,000 of cash during the same period last year. For the three months ended June 30, 2007, cash was primarily used to make net purchases of $3,500 of short-term investments as well as modest plant expansion and normal recurring capital expenditures. During the three months ended June 30, 2006, cash was primarily used to make net purchases of $4,500 of short-term investments, combined with $500 in purchases of property, plant and equipment.

Financing activities provided $808 in cash during the three months ended June 30, 2007 resulting from proceeds associated with the issuance of common stock and related incremental tax benefits upon exercise of stock options under our stock incentive plans.

Critical Accounting Policies

In Part II, Item 7 of our Form 10-K, under the heading “Critical Accounting Policies”, we have provided a discussion of the critical accounting policies that management believes affect its more significant judgments and estimates used in the preparation of our Consolidated Financial Statements. Additionally, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 effective April 1, 2007, as discussed in Note 1.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS 157”), which clarifies that the term fair value is intended to mean a market-based measure, not an entity-specific measure and gives the highest priority to quoted prices in active markets in determining fair value. SFAS 157 requires

disclosures about (1) the extent to which companies measure assets and liabilities at fair value, (2) the methods and assumptions used to measure fair value, and (3) the effect of fair value measures on earnings. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact, if any; SFAS 157 will have on our financial position and results of operations.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities including an amendment of FASB Statement No. 115 , (“SFAS 159”) which permits an entity to choose to irrevocably elect fair value on a contract-by-contract basis as the initial and subsequent measurement attribute for many financial assets and liabilities and certain other items including insurance contracts. Entities electing the fair value option would be required to recognize changes in fair value in earnings and to expense upfront cost and fees associated with the item for which the fair value option is elected. The provisions of SFAS 159 are effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157. Management is currently evaluating the impact, if any; SFAS 159 will have on its consolidated financial position, results of operations and cash flows.

From time to time, new accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.

Forward-looking Statements

Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. In addition to the Risk Factors described in Part I, Item 1A. Risk Factors in our Form 10-K, factors that could affect our results and cause them to materially differ from those contained in the forward-looking statements include, but are not limited to:

	•		We have incurred net losses in certain prior periods and there can be no assurance that we will generate income in the future;

	•		We operate in an industry that is currently experiencing a prolonged and significant downturn;

	•		Housing demand and geographic concentration;

	•		A write-off of all or part of our goodwill could adversely affect our operating results and net worth;

	•		The cyclical and seasonal nature of the manufactured housing industry causes our revenues and operating results to fluctuate, and we expect this cyclicality and seasonality to continue in the future;

	•		Our liquidity and ability to raise capital may be limited;

	•		Tightened credit standards and curtailed lending activity by home-only lenders have contributed to a constrained consumer financing market;

	•		The availability of wholesale financing for industry retailers is limited due to a reduced number of floor plan lenders and reduced lending limits;

	•		We have contingent repurchase obligations related to wholesale financing provided to industry retailers;

	•		The manufactured housing industry is highly competitive, and competition may increase the adverse effects of industry conditions;

	•		If we are unable to establish or maintain relationships with independent retailers who sell our homes, our sales could decline;

	•		Our results of operations can be adversely affected by labor shortages and the pricing and availability of raw materials;

	•		If the manufactured housing industry is not able to secure favorable local zoning ordinances, our sales could decline and our business could be adversely affected;

	•		The loss of any of our executive officers could reduce our ability to execute our business strategy and could have a material adverse effect on our business and results of operations;

	•		We may be required to satisfy certain indemnification obligations to Centex Corporation, our predecessor, or may not be able to collect on indemnification rights from Centex;

	•		We could be responsible for certain tax liabilities if the Internal Revenue Service challenges the tax-free nature of the share distribution that resulted in us becoming an independent company;

	•		Certain provisions of our organizational documents could delay or make more difficult a change in control of our company; and

	•		Volatility of stock price.

We may make additional written or oral forward-looking statements from time to time in filings with the SEC or in public news releases or statements. Such additional statements may include, but are not be limited to include, projections of revenues, income or loss, capital expenditures, acquisitions, plans for future operations, financing needs or plans, the impact of inflation and plans relating to our products or services, as well as assumptions relating to the foregoing.

Statements in this Report on Form 10-Q, including those set forth in this section, may be considered “forward looking statements” within the meaning of Section 21E of the Securities Act of 1934. These forward-looking statements are often identified by words such as “estimate,” “predict,” “hope,” “may,” “believe,” “anticipate,” “plan,” “expect,” “require,” “intend,” “assume,” and similar words.

Forward-looking statements contained in this Report on Form 10-Q speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. We do not intend to publicly update or revise any forward-looking statement contained in this Report on Form 10-Q or in any document incorporated herein by reference to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss arising from adverse changes in market prices and interest rates. We may from time to time be exposed to interest rate risk inherent in our financial instruments, but are not currently subject to foreign currency or commodity price risk. We manage our exposure to these market risks through our regular operating and financing activities. We are not currently a party to any market risk sensitive instruments that could be reasonably expected to have a material effect on our financial condition or results of operations.

The Company maintains short-term investments. Short-term investments are comprised of auction rate certificates which are adjustable-rate securities with dividend rates that are reset by bidders through periodic “Dutch auctions” generally conducted every 7 to 35 days by a broker/dealer on behalf of the issuer. The Company believes these securities are highly liquid investments through the related auctions; however, the collateralizing securities have stated terms of up to thirty (30) years. The investment instruments are rated AAA by Standard & Poor’s Ratings Group, or equivalent. The Company’s investments are intended to establish a high-quality portfolio that preserves principal, meets liquidity needs, and delivers an appropriate yield in relationship to the Company’s investment guidelines and market conditions. Given the short-term nature of these investments, and that we have no borrowings outstanding, we do not believe that we are subject to significant interest rate risk.

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures

The term “disclosure controls and procedures” means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) (15 U.S.C. 78a et seq .) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and

procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to a member of company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on 10-Q, our disclosure controls and procedures are effective in enabling us to record, process, summarize and report information required to be included in our periodic SEC filings within the required time period.

(b) Changes In Internal Control Over Financial Reporting

The term “internal control over financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

No change in the Company’s internal control over financial reporting occurred during the fiscal quarter ended June 30, 2007 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information regarding reportable legal proceedings is contained in Part I, Item 3, Legal Proceedings , in our Form 10-K. The following describes legal proceedings, if any, that became reportable during the quarter ended June 30, 2007, and, if applicable, amends and restates descriptions of previously reported legal proceedings in which there have been material developments during such quarter.

We are party to certain legal proceedings that arise in the ordinary course and are incidental to our business. Certain of the claims pending against us in these proceedings allege, among other things, breach of contract and warranty, product liability and personal injury. Although litigation is inherently uncertain, based on past experience and the information currently available, management does not believe that the currently pending and threatened litigation or claims will have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations. However, future events or circumstances currently unknown to management will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting periods.

Item 1A. Risk Factors

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, Item 1A, Risk Factors, in our Form 10-K, which could materially affect our business, financial condition or future results. The risks described in this Report and in our Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 4: Submission of Matters to a Vote of Security Holders

On June 26, 2007, the Company held its 2007 Annual Meeting of Stockholders. At the Annual Meeting, the stockholders elected Jacqueline Dout to serve as a member of the Board of Directors for a three-year term. The terms of Joseph H. Stegmayer and Michael H. Thomas will expire in 2008. The terms of Steven G. Bunger and Jack Hanna will expire in 2009.

There were present at the Annual Meeting, in person or by proxy, stockholders of the Company who were holders of record on May 4, 2007 of 6,129,844 shares of common stock or 96.03% of the total shares of the outstanding common stock of the Company, which constituted a quorum. Of the 6,382,980 shares entitled to vote in such election, the votes cast were as follows:


Election of Directors:	Votes For	Votes Withheld
Jacqueline Dout	6,059,633	70,211

At the same meeting, a proposal for the ratification of the selection of Ernst & Young LLP as independent Auditor of the Company was submitted to the stockholders, and the votes caste were as follows:


Votes For	Votes Against	Abstentions	Nonvotes
6,123,534	2,648	3,664	253,134

Item 6: Exhibits

See Exhibit Index.

All other items required under Part II are omitted because they are not applicable.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Cavco Industries, Inc.
	Registrant

August 1, 2007	/s/ Joseph H. Stegmayer
	Joseph H. Stegmayer – Chairman,
	President and Chief Executive Officer (Principal Executive Officer)



August 1, 2007	/s/ Daniel L. Urness
	Daniel L. Urness
	Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

EXHIBIT INDEX


Exhibit No.		Exhibit

3.1(1)		Restated Certificate of Incorporation

3.2(2)		Certificate of Amendment of Restated Certificate of Incorporation

3.3(3)		Amended and Restated Bylaws

10.1*		Representative Form of Restricted Stock Award Agreement for the applicable Cavco Industries, Inc. stock incentive plan

10.2*		Restricted Stock Award Agreement dated June 1, 2007, by and between Daniel L. Urness and Cavco Industries, Inc.

31.1*		Certification of the Principal Executive Officer Pursuant to Rule 13-14(a) under the Securities Exchange Act of 1934

31.2*		Certification of the Principal Financial Officer pursuant to Rule 13-14(a) under the Securities Exchange Act of 1934

32**		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


(1)		Incorporated by reference to Exhibit 3.1 of the Annual Report on Form 10-K for the fiscal year ended March 31, 2004

(2)		Incorporated by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2006

(3)		Incorporated by reference to Exhibit 3.2 of the Annual Report on Form 10-K for the fiscal year ended March 31, 2004

*		Filed herewith

**		Furnished herewith

Exhibit 10.1

Representative Form of Restricted Stock Award Agreement for the applicable Cavco Industries, Inc. stock incentive plan

CAVCO INDUSTRIES, INC.

RESTRICTED STOCK AWARD AGREEMENT

THIS RESTRICTED STOCK AWARD AGREEMENT (“Award Agreement”) is made as of the [DATE], by and between Cavco Industries, Inc., a Delaware corporation (the “Company”), and [NAME OF GRANTEE] (the “Grantee”).

The Company and the Grantee therefore agree as follows:

1. Grant of Restricted Stock. Effective as [GRANT DATE] (the “Grant Date”), the Company has awarded to the Grantee a total of [NUMBER OF SHARES] shares of the common stock, par value $.01 per share (“Common Stock”), from the [NAME OF PLAN] Stock Incentive Plan , subject to the conditions and restrictions set forth below (the “Restricted Stock”).

2. Definitions. For purposes of this Award Agreement:

(a) “Board” means the Board of Directors of the Company.

(b) “Breach” shall mean a breach by either the Grantee or the Company, as the case may be, of a term of this Agreement which breach remains uncured for 15 days after written notice is received by the party in breach from the party asserting the breach.

(c) “Committee” means (i) the Board, during any period in which there shall be no Compensation Committee of the Board comprised of two or more nonemployee directors or during any other period during which the Board elects to exercise the authority of the Committee, or (ii) the Compensation Committee of the Board, during all other periods.

(d) “Disability” shall mean the Grantee’s inability, by reason of a mental or physical impairment, to perform [his or her] duties and responsibilities for a period of at least six (6) consecutive months.

(e) “Service” means employment with the Company or any of its subsidiaries.

(f) “Restricted Period” means the period commencing on the Grant Date and ending on the date that the Grantee obtains a vested right to all of the Total Restricted Shares (and the restrictions thereon terminate) in accordance with Paragraph 3.

(g) “Termination for Cause” shall mean the Company’s termination of the Grantee’s employment pursuant to a determination by the Board, in its sole and absolute discretion, but acting in good faith, for any of the following reasons: (i) the Grantee is guilty of willful failure or refusal without proper cause, to substantially perform [his or her] duties as an employee of the Company; (ii) the Grantee is in breach of [his or her] fiduciary duties; (iii) the Grantee is convicted for any criminal act, except that a misdemeanor conviction shall not constitute “Termination for Cause” unless it shall have involved misappropriate use of funds or property, fraud, or other similar activity which bears directly upon the Grantee’s ability to perform faithfully [his or her] duties as an employee of the Company or which damage the reputation or credibility of the company; or (iv) the Grantee is guilty of malfeasance.

(h) “Total Restricted Shares” means the total number of shares of Restricted Stock that are the subject of this Award on the Grant Date.

3. Vesting.

(a) The Grantee shall become vested [INSERT VESTING SCHEDULE]; provided, however, that the Grantee must be in continuous Service from the Grant Date through the date of the applicable anniversary in order to vest in shares of Restricted Stock as to which the Grantee would otherwise vest on such anniversary. In the event that any day on which the Grantee would otherwise obtain a vested right to additional shares of Restricted Stock is a Saturday, Sunday or holiday, the Grantee shall instead obtain that vested right on the first business day immediately following such date. The foregoing provisions of this Paragraph 3(a) are subject to the provisions below, addressing events that may result in early termination of the Restricted Period or forfeiture of the Grantee’s interest in all or part of the Restricted Stock.

(b) All of the Total Restricted Shares shall fully vest, regardless of the limitations set forth in subparagraph (a) above, in the event of the Grantee’s termination of Service, other than as a result of (i) a Termination for Cause; (ii) a voluntary resignation of the Grantee when there is no uncured Breach by the Company of any obligation or duty owed by the Company to Grantee; (iii) Disability or (iv) Death; provided, however, that the Grantee has been in continuous Service since the Grant Date.

(c) In the event of a termination of Service as a result of a Termination for Cause, a voluntary resignation of the Grantee when there is no uncured Breach by the Company of any obligation or duty owed by the Company to Grantee, Disability or death, this Award Agreement shall immediately terminate, to the extent not theretofore vested, and be of no force and effect and all Restricted Stock awarded to the Grantee that has not previously vested shall be forfeited.

4. Restrictions. Restricted Stock shall constitute issued and outstanding shares of common stock for all corporate purposes. The Grantee will have the right (a) to vote such Restricted Stock, (b) to receive and retain such dividends and distributions, as the Committee may in its sole discretion designate, paid or distributed on such Restricted Stock and (c) to exercise all other rights, powers and privileges of a holder of Common Stock with respect to such Restricted Stock; except, that (i) the Grantee will not be entitled to delivery of the stock certificate or certificates representing such Restricted Stock until the Restricted Period shall have expired and unless all other vesting requirements with respect thereto shall have been fulfilled or waived, (ii) the Company will retain custody of the stock certificate or certificates representing the Restricted Stock during the Restricted Period as provided in Paragraph 8, (iii) other than such dividends and distributions as the Committee may in its sole discretion designate, the Company will retain custody of all distributions (“Retained Distributions”) made or declared with respect to the Restricted Stock (and such Retained Distributions will be subject to the same restrictions, terms and vesting and other conditions as are applicable to the Restricted Stock) until such time, if ever, as the Restricted Stock with respect to which such Retained Distributions shall have been made, paid or declared shall have become vested, and such Retained Distributions shall not bear interest or be segregated in a separate account, (iv) the Grantee may not sell, assign, transfer, pledge, exchange, encumber or dispose of the Restricted Stock or any Retained Distributions or the Grantee’s interest in any of them during the Restricted Period, and (v) a breach of any restrictions, terms or conditions provided in this Award Agreement or established by the Committee with respect to any Restricted Stock or Retained Distributions will cause a forfeiture of such Restricted Stock and any Retained Distributions with respect thereto.

5. Completion of the Restricted Period. On the vesting date with respect to any shares of Restricted Stock, and the satisfaction of any other applicable restrictions, terms and conditions (a) all or the applicable portion of such Restricted Stock shall become vested and (b) any Retained Distributions with respect to such Restricted Stock shall become vested to the extent that the Restricted Stock related thereto shall have become vested. Any such Restricted Stock and Retained Distributions that shall not become vested shall be forfeited to the Company and the Grantee shall not thereafter have any rights (including dividend and voting rights) with respect to such Restricted Stock and Retained Distributions that shall have been so forfeited.

6. Section 83(b) Election. Grantee understands that Section 83 of the Code taxes as ordinary income the difference between the amount paid for the Restricted Stock and the Fair Market Value of the Restricted Stock as of the date any restrictions on the Restricted Stock lapse. In this context, “restriction” means the

restrictions set forth in Paragraph 4 hereof. Grantee understands that Grantee may elect to be taxed at the time the Restricted Stock are granted rather than when and as the Restricted Stock vest by filing an election under Section 83(b) of the Code with the Internal Revenue Service within thirty (30) days from the Date of Grant. Grantee understands that failure to make this filing timely shall result in the recognition of ordinary income by Grantee on the Fair Market Value of the Restricted Stock at the time such restrictions lapse.

THE GRANTEE ACKNOWLEDGES THAT IT IS THE GRANTEE’S SOLE RESPONSIBILITY, AND NOT THE COMPANY’S, TO FILE TIMELY THE ELECTION UNDER SECTION 83(b) OF THE CODE, EVEN IF THE GRANTEE REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE GRANTEE’S BEHALF.

7. Sale of Restricted Stock. The Grantee agrees that the Grantee shall not sell, transfer or dispose of the Restricted Stock and that the Company shall not be obligated to deliver any shares of common stock if counsel to the Company determines that such sale, transfer, disposition or delivery would violate any applicable law or any rule or regulation of any governmental authority or any rule or regulation of, or agreement of the Company with, any securities exchange or association or automated quotation system upon which the common stock is listed or quoted. The Company shall in no event be obligated to take any affirmative action in order to cause the delivery of shares of common stock to comply with any such law, rule, regulation or agreement.

8. Escrow of Shares. Shares of Restricted Stock shall be, at the election of the Committee, either (a) registered in book entry form, (b) registered in the name of the Grantee and deposited with the Secretary of the Company or (c) held in nominee name for the benefit of the Grantee during the Restricted Period, in any case, if the Company requests, together with a stock power endorsed by the Grantee in blank. Any certificate shall bear a legend as provided by the Company, conspicuously referring to the terms, conditions and restrictions described in this Award Agreement. Upon termination of the Restricted Period with respect to shares of Restricted Stock, a certificate representing such shares shall be delivered upon written request to the Grantee as promptly as is reasonably practicable following such termination.

9. Beneficiary Designations. The Grantee shall file with the Committee on the form appended to this Award Agreement as Exhibit A or such other form as may be prescribed by the Company, a designation of one or more beneficiaries (each, a “Beneficiary”) to whom shares otherwise due to the Grantee shall be distributed in the event of the death of the Grantee while in the Service of the Company. The Grantee shall have the right to change the Beneficiary or Beneficiaries from time to time; provided, however, that any change shall not become effective until received in writing by the Committee. If any designated Beneficiary survives the Grantee but dies before receiving all of the Grantee’s benefits hereunder, any remaining benefits due the Grantee shall be distributed to the deceased Beneficiary’s estate. If there is no effective Beneficiary designation on file with the Committee at the time of the Grantee’s death, or if the designated Beneficiary or Beneficiaries have all predeceased such Grantee, the payment of any remaining benefits shall be made to the Grantee’s estate.

10. Nonalienation of Benefits. Except as contemplated by Paragraph 9 above, and other than pursuant to a qualified domestic relations order, no right or benefit under this Award Agreement shall be subject to transfer, anticipation, alienation, sale, assignment, pledge, encumbrance or charge, whether voluntary, involuntary or by operation of law, and any attempt to transfer, anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to any debts, contracts, liabilities or torts of the person entitled to such benefits. If the Grantee or the Grantee’s Beneficiary hereunder shall become bankrupt or attempt to transfer, anticipate, alienate, assign, sell, pledge, encumber or charge any right or benefit hereunder, other than as contemplated by Paragraph 9 above or other than pursuant to a qualified domestic relations order, or if any creditor shall attempt to subject the same to a writ of garnishment, attachment, execution, sequestration or any other form of process or involuntary lien or seizure, then such right or benefit shall cease and terminate.

11. Prerequisites to Benefits. Neither the Grantee nor any person claiming through the Grantee shall have any right or interest in the Restricted Stock awarded hereunder, unless and until all the terms, conditions and provisions of this Award Agreement which affect the Grantee or such other person shall have been complied with as specified herein.

12. Rights as a Stockholder. Subject to the limitations and restrictions contained herein, the Grantee (or Beneficiary) shall have all rights as a stockholder with respect to the shares of the Restricted Stock once such shares have been registered in the Grantee’s name or issued for the benefit of the Grantee hereunder.

13. Certain Corporate Transactions; Adjustments. The existence of this Agreement or the award of the Restricted Stock made hereunder shall not affect in any manner the right and power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the capital stock of the Company or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock (whether or not such issue is prior to, on a parity with or junior to the Common Stock) or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding of any kind, whether or not of a character similar to that of the acts or proceedings enumerated above. In the event of any subdivision or consolidation of outstanding Shares, declaration of a dividend payable in Shares or other stock split, then the award of restricted stock shall be adjusted in accordance with Paragraph 11, subsection (b) of the [NAME OF PLAN] Stock Incentive Plan.

14. Notice. Unless the Company notifies the Grantee in writing of a different procedure, any notice or other communication to the Company with respect to this Award Agreement shall be in writing and shall be delivered personally or by first class mail, postage prepaid and addressed, to the following address:

Cavco Industries, Inc.
Attention: Secretary
1001 North Central
Suite 800
Phoenix, Arizona 85004

Any notice or other communication to the Grantee with respect to this Award Agreement shall be in writing and shall be delivered personally or shall be sent by first class mail, postage prepaid, to the Grantee’s address as listed in the records of the Company on the Grant Date, unless the Company has received written notification from the Grantee of a change of address.

15. Amendment . This Award Agreement may be supplemented or amended from time to time as approved by the Committee, provided, however, that an amendment shall not adversely affect the rights of the Grantee with respect to the award of Restricted Stock evidenced hereby without the Grantee’s written consent.

16. Grantee Service . Nothing contained in this Award Agreement, and no action of the Company or the Committee with respect hereto, shall confer or be construed to confer on the Grantee any right to continue in the Service of the Company.

17. Successors and Assigns. This Award Agreement shall bind and inure to the benefit of and be enforceable by the Grantee, the Company and their respective permitted successors and assigns (including personal representatives, heirs and legatees), except that the Grantee may not assign any rights or obligations under this Award Agreement except to the extent and in a manner expressly provided herein.

18. Governing Law. This Award Agreement shall in all respects be governed by, and construed and enforced in accordance with, the laws of the State of Arizona to the extent not preempted by federal law.

19. Construction. References in this Award Agreement to “this Award Agreement” and the words

“herein,” “hereof,” “hereunder” and similar terms include all Exhibits appended hereto. The headings of the Paragraphs of this Award Agreement have been included for convenience of reference only and are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. All decisions of the Committee regarding this Award Agreement shall be conclusive.

20. Duplicate Originals. The Company and the Grantee may sign any number of copies of this Award Agreement. Each signed copy shall be an original, but all of them together represent the same agreement.

21. Entire Agreement. The Grantee and the Company hereby declare and represent that no promise or agreement not herein expressed has been made and that this Award Agreement contains the entire agreement between the parties hereto with respect to the Restricted Stock granted herein and replaces and makes null and void any prior agreements, oral or written, between the Grantee and the Company regarding the Restricted Stock awarded herein.

22. Grantee Acceptance. The Grantee shall signify acceptance of the terms and conditions of this Award Agreement by signing in the space provided at the end hereof and returning an executed copy to the Company.


		CAVCO INDUSTRIES, INC.

		By:


		ACCEPTED :



		Grantee

Exhibit A to Restricted Stock Award Agreement, dated as of [GRANT DATE]

CAVCO INDUSTRIES, INC.

BENEFICIARY DESIGNATION FORM

I, [GRANTEE NAME] (the “Grantee”), do hereby make the following designation of beneficiary who shall be entitled to the Restricted Stock and all other rights accorded the Grantee by the above-referenced Restricted Stock Award Agreement (the “Award Agreement”):

Primary Beneficiary(ies)


Name	Address	Relationship	Distribution %

Secondary Beneficiary(ies)


Name	Address	Relationship	Distribution %

It is understood that this Designation of Beneficiary is made pursuant to the Award Agreement and is subject to the conditions stated therein, including the Beneficiary’s survival of the Grantee’s death. If any such condition is not satisfied, such rights shall devolve according to the Grantee’s will or the laws of descent and distribution.

It is further understood that all prior designations of beneficiary under the Award Agreement are hereby revoked and that this Designation of Beneficiary may only be revoked in writing, signed by the Grantee and filed with the Company prior to the Grantee’s death.




Date				Grantee

Exhibit 10.2

Restricted Stock Award Agreement dated June 1, 2007, by and between Daniel L. Urness and Cavco Industries, Inc.

CAVCO INDUSTRIES, INC.

RESTRICTED STOCK AWARD AGREEMENT

THIS RESTRICTED STOCK AWARD AGREEMENT (“Award Agreement”) is made as of the 1 ^st day of June, 2007, by and between Cavco Industries, Inc., a Delaware corporation (the “Company”), and Daniel L. Urness (the “Grantee”).

The Company and the Grantee therefore agree as follows:

1. Grant of Restricted Stock. Effective as of June 1, 2007 (the “Grant Date”), the Company has awarded to the Grantee a total of 786 shares of the common stock, par value $.01 per share (“Common Stock”), from the Cavco Industries, Inc. 2003 Stock Incentive Plan, subject to the conditions and restrictions set forth below (the “Restricted Stock”).

2. Definitions. For purposes of this Award Agreement:

(a) “Board” means the Board of Directors of the Company.

(b) “Breach” shall mean a breach by either the Executive or the Company, as the case may be, of a term of this Agreement which breach remains uncured for 15 days after written notice is received by the party in breach from the party asserting the breach.

(d) “Disability” shall mean the Executive’s inability, by reason of a mental or physical impairment, to perform his duties and responsibilities for a period of at least six (6) consecutive months.

(e) “Service” means employment with the Company or any of its subsidiaries.

(g) “Termination for Cause” shall mean the Company’s termination of the Executive’s employment pursuant to a determination by the Board, in its sole and absolute discretion, but acting in good faith, for any of the following reasons: (i) the Executive is guilty of willful failure or refusal without proper cause, to substantially perform his duties as an employee of the Company; (ii) the Executive is in breach of his fiduciary duties; (iii) the Executive is convicted for any criminal act, except that a misdemeanor conviction shall not constitute “Termination for Cause” unless it shall have involved misappropriate use of funds or property, fraud, or other similar activity which bears directly upon the executive’s ability to perform faithfully his duties as an employee of the Company or which damage the reputation or credibility of the company; (iv) the Executive loses his CPA designation; or (v) the Executive is guilty of malfeasance.

(h) “Total Restricted Shares” means the total number of shares of Restricted Stock that are the subject of this Award on the Grant Date.

3. Vesting.

(a) The Grantee shall become vested with respect to 20% of the Total Restricted Shares on each of the first, second, third, fourth and fifth anniversaries of the Grant Date; provided, however, that the Grantee must be in continuous Service from the Grant Date through the date of the applicable anniversary in order to vest in shares of Restricted Stock as to which the Grantee would otherwise vest on such anniversary. In the event that any day on which the Grantee would otherwise obtain a vested right to additional shares of Restricted Stock is a Saturday, Sunday or holiday, the Grantee shall instead obtain that vested right on the first business day immediately following such date. The foregoing provisions of this Paragraph 3(a) are subject to the provisions below, addressing events that may result in early termination of the Restricted Period or forfeiture of the Grantee’s interest in all or part of the Restricted Stock.

Stock as of the date any restrictions on the Restricted Stock lapse. In this context, “restriction” means the restrictions set forth in Paragraph 4 hereof. Grantee understands that Grantee may elect to be taxed at the time the Restricted Stock are granted rather than when and as the Restricted Stock vest by filing an election under Section 83(b) of the Code with the Internal Revenue Service within thirty (30) days from the Date of Grant. Grantee understands that failure to make this filing timely shall result in the recognition of ordinary income by Grantee on the Fair Market Value of the Restricted Stock at the time such restrictions lapse.

Cavco Industries, Inc.
Attention: Secretary
1001 North Central
Suite 800
Phoenix, Arizona 85004

15. Amendment. This Award Agreement may be supplemented or amended from time to time as approved by the Committee, provided, however, that an amendment shall not adversely affect the rights of the Grantee with respect to the award of Restricted Stock evidenced hereby without the Grantee’s written consent.

19. Construction. References in this Award Agreement to “this Award Agreement” and the words “herein,” “hereof,” “hereunder” and similar terms include all Exhibits appended hereto. The headings of the Paragraphs of this Award Agreement have been included for convenience of reference only and are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. All decisions of the Committee regarding this Award Agreement shall be conclusive.


	CAVCO INDUSTRIES, INC.
	By:	/s/ Joseph H. Stegmayer
		Joseph H. Stegmayer
		President and Chief Financial Officer


	ACCEPTED :
	/s/ Daniel L. Urness
	Grantee: Daniel L. Urness

Exhibit A to Restricted Stock Award Agreement, dated as of June 1, 2007

CAVCO INDUSTRIES, INC.

BENEFICIARY DESIGNATION FORM

I, Daniel L. Urness (the “Grantee”), do hereby make the following designation of beneficiary who shall be entitled to the Restricted Stock and all other rights accorded the Grantee by the above-referenced Restricted Stock Award Agreement (the “Award Agreement”):

Primary Beneficiary(ies)


Name	Address	Relationship	Distribution %

Secondary Beneficiary(ies)


Name	Address	Relationship	Distribution %





Date				Grantee

Exhibit 31.1

Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Joseph H. Stegmayer, certify that:

	1.		I have reviewed this quarterly report on Form 10-Q of Cavco Industries, Inc.;

	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a.		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b.		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c.		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

	a.		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b.		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 1, 2007


By:		/s/ Joseph H. Stegmayer

		Joseph H. Stegmayer
		Chief Executive Officer

Exhibit 31.2

Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Daniel L. Urness, certify that:

	1.		I have reviewed this quarterly report on Form 10-Q of Cavco Industries, Inc.;

	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a.		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b.		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c.		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a.		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b.		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 1, 2007


By:		/s/ Daniel L. Urness

		Daniel L. Urness
		Chief Financial Officer

Exhibit 32

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Cavco Industries, Inc. (the “Registrant”) on Form 10-Q for the period ending June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Joseph H. Stegmayer and Daniel L. Urness, Chief Executive Officer and Chief Financial Officer, respectively, of the Registrant, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

August 1, 2007


/s/		Joseph H. Stegmayer

		Joseph H. Stegmayer
		President and Chief Executive Officer

/s/		Daniel L. Urness

		Daniel L. Urness
		Vice President and Chief Financial Officer

End of Filing